THEMATIC PROGRAMME ON FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE

INTERNATIONAL TROPICAL TIMBER ORGANIZATION (ITTO) THEMATIC PROGRAMME ON FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE PROJECT DOCUMENT TITLE: SERIAL NUMBER: SUBMITTED BY: ORIGINAL LANGUAGE: STRENGTHENING THE CAPACITY OF RELATED STAKEHOLDERS IN JAVA ON IMPLEMENTING NEW INDONESIAN TLAS TFL-PD 010/09 Rev.1 (M) GOVERNMENT OF INDONESIA ENGLISH SUMMARY: Timber legality and verification system (Sistim Verifikasi Legalitas Kayu - SVLK) is developed to provide legal assurance on timber products from Indonesia in order that Indonesian timber goods will be accepted by the international market. After a long process that involving multi-stakeholders on forestry sector since 2003, eventually on 12 June 2009 the Ministry of Forestry issued a ministerial decree on sustainable forest management and timber legality verification through the Minister of Forestry decree No. P.38/Menhut-II/2009 concerning Standard and Guidelines on Assessment and Performance of Sustainable Production Forest Management and Verification of Timber Legality that applied for state and private forests. Additionally, with regard to the standard, an assessment guidelines is stipulated under decree of the Director General of Production Forest Management No. P.6/VI-Set/2009. For the next step, the capacity of relevant stakeholders and organization still need to be improved to implement the regulation effectively, especially for the community forest owned. In light of the importance in tackling the issues, the project will support the implementation of the new Indonesian TLAS for timber resource from community forest and community plantation forest in Java. As the top priority, the proposed project will focus on improving capacity for relevant stakeholders that will be achieved through dissemination of information on the new standard of TLAS for community and relevant stakeholders, development series of training and strengthening of the institution. This idea under the ITTO Thematic Programmes on Forest Law Enforcement and Forest Degradation and Enhancing Environment (TFLET). The expected outputs of the project are: 1) Dissemination of information on the new standard of TLAS for community and relevant stakeholders conducted through workshop, focus discussion and seminar; 2) Institution for independent monitoring implementaion of TLAS for timber resource from community forest and community plantation forest is assessed; 3) Series training to introduce and implement the standard on assessment of performance of sustainable production forest management and verification of timber legality from community forest resource for license holder of community forest (HR) and community plantation forest (HTR) as well as local government officers and the small/medium wood processing industries. Upon completion of the project, the capacities relevant parties/stakeholder in implementing TLAS had been improved. Trade volume of legal timber from sustainable community forest and community plantation forest will improve as well. A long term effect of the project intervention is expected that local economy of forest dependent Communities in java increased and Illegal logging and illegal timber in Indonesia reduced. EXECUTING AGENCY: COLLABORATING AGENCY: DURATION: SECRETARIAT DIRECTORATE GENERAL OF FOREST PRODUCTION CENTRE FOR FORESTRY EDUCATIONI AND TRAINING, MINISTRY OF FORESTRY (MoF) 24 MONTHS BUDGET AND PROPOSED SOURCES OF FINANCE: Source Contribution in US$ Local Currency Equivalent ITTO 474,163.00 Govt. of Indonesia 81,000.00 TOTAL 555,163.00

Table of Contents LIST OF ABBREVIATIONS AND ACRONYMS PART I PROJECT CONTEXT 1.1. Origin 1.2. Relevance 1.2.1. Conformity with ITTO s objectives and priorities 1.2.2. Relevance to the submitting country s policies 1.3. Target Area 1.4. Outcomes at project completion PART II PROJECT RATIONALE AND OBJECTIVES 2.1. Rationale 2.1.1. Institutional set-up and organizational issues 2.1.2. Stakeholder analysis 2.1.3. Problem analysis 2.1.4. Logical framework matrix. 2.2. Objectives 2.2.1. Development objective and impact indicators 2.2.2. Specific objective and outcome indicators PART III DESCRIPTION OF PROJECT INTERVENTIONS 3.1. Outputs and Activities 3.1.1. Outputs 3.1.2. Activities 3.2. Implementation approach and methods 3.3. Work plan 3.4. Budget 3.4.1. Master budget schedule 3.4.2. Consolidated budget by component 3.4.3. ITTO budget by component 3.4.4. Executing Agency budget by component. 3.5. Assumptions, risks, sustainability 3.5.1. Assumptions and risks 3.5.2. Sustainability PART IV IMPLEMENTATION ARRANGEMENTS 4.1. Organizational structure and stakeholder involvement mechanisms 4.1.1. Executing agency and partners 4.1.2. Project management team 4.1.3. Project steering committee 4.1.4. Stakeholder involvement mechanism 4.2. Reporting, review, monitoring and evaluation 4.3. Dissemination and mainstreaming of project learning 4.3.1. Dissemination of project results 4.3.2. Mainstreaming project learning ANNEXES: Annex 1 Annex 2 Annex 3 PROFILE OF THE EXECUTING AGENCY TERMS OF REFERENCE OF PERSONNEL AND CONSULTANTS FUNDED BY ITTO RECOMMENDATIONS OF ITTO S EXPERT PANEL AND RESULTING MODIFICATIONS -i-

PROJECT BRIEF Lack of forest law enforcement, governance and trade generating illegal logging in Indonesia that consequently affecting Indonesian forest product share in the international market. With regard to the improvement of forest law enforcement, governance and trade, the Government of Indonesia has undertaken a lot of efforts and initiatives concerning to good forest governance through the issuance of regulation to provide legal assurance and guidelines for all stakeholders that have business or activities on forestry sector. Therefore, since 2003 the Government initiated to collaboratively work with multi-stakeholders in developing timber legality standard. The Indonesian timber legality standard was developed to answer attack from various parties, particularly international forest community toward concerns on legality of timber and timber products from Indonesia. Doubtfulness on timber legality has affected to marketing and price of Indonesian timber and timber products that eventually creating uncertainty to the product sustainability. Timber verification legality system/tvls (Sistim Verifikasi Legalitas Kayu - SVLK) is developed to provide legal assurance on timber products from Indonesia in order that Indonesian timber goods will be accepted by the international market. After a long process that involving multi-stakeholders on forestry sector, eventually on 12 June 2009 the Ministry of Forestry issued a ministerial decree on sustainable forest management and timber legality through the Minister of Forestry decree No. P.38/Menhut-II/2009 concerning Standard and Guidelines on Assessment and Performance of Sustainable Production Forest Management and Verification of Timber Legality that applied for state and private forests. Additionally, with regard to the standard, an assessment guidelines is stipulated under decree of the Director General of Production Forest Management No. P.6/VI- Set/2009. The next step, the capacity of relevant stakeholder and organization still need to be improved to implement the regulation and system effectively; Those who are involved in the implementation of TVLS shall have adequate human and other resources and necessary technical skills to fulfill their responsibilities. Epecially for the community forest owner and small/medium wood processing industries as well as for local government, they are need further information and technical consultations on the accreditation and verification process. In light of the importance in tackling the issues, the project will support the implementation of the new Indonesian TLAS (Timber Legality and Assurance System) for timber resource from community forest and community plantation forest in Java. As the top priority, the proposed project will focus on improving capacity of these stakeholders. The project beneficiaries are wide range of stakeholders, from forest managers, local communities, academicians, verification and certification consultants, as well as local and national governments. Proposed pilot area on community based forest plantation is located in Java. The expected outputs of the project are: 1) Dissemination of information on the new standard of TLAS for community and relevant stakeholders conducted through workshop, focus discussion and seminar ; 2) Institution for independent monitoring implementaion of TLAS for timber resource from community forest and community plantation forest is assessed; 3) Series training to introduce and implement the standard on assessment of performance of sustainable production forest management and verification of timber legality from community forest resource for license holder of community forest (HTR) and community plantation forest (HTI) as well as local government officers The strategy to be implemented to achieve the planned output are through conducting several discussion, group meeting and workshops to inform the new standard of TLAS for community and relevant stakeholders (including small/medium size forest industries, local government, customs officer, and the local independent assessment body); development series of training based on participant s need; and strengthening of the institution which will be proposed as an independent monitoring institution. Those activities above are need a serious participation of all relevant stakeholders. This idea under the ITTO Thematic Programmes on Forest Law Enforcement and Forest Degradation and Enhancing Environment (FLEGT). The project result could be seen from the outcome among others: 1. Enhanced capacity of small and medium sized forest enterprises in harvesting, processing and handling timber from legal and sustainably managed sources. The Ministry of Forestry regulation no. P.38/Menhut-II/2009 concerning Standards and Guidelines on Assessment of Performance of SFM and Verification of Timber Legality for License holder or in private forests will be implemented effectively. By the end of project, production and trade volume of tropical timber from legal sources by community and Small/medium forest industries increased and recognized as well accepted in key export markets. -1-

2. Enhanced capacity of forest dependent and local communities to sustainably managed their forests in order to alleviate poverty. The number of community forests and small/medium forest industries operating in the legal/formal forestry sector increased. Employment opportunities developed and improved, and local economy of forest communities increased. 3. Independent Institutions for monitoring the implementation of new Indonesian regulation on Timber Legality verification will be proposed. The independent monitoring institution should be developed in order to provide assurance to all interested parties that the system is working as planned and maintain its credibility. For its sustainability, capacity building activities undertaken to all involved stakeholders such in communities and the partnerships of small/medium forest enterprises. The effective networking among all relevant stakeholders will be maintained. The potential risks associated with the project and likely will affect its implementation are: 1. Local government does not support the policies since the national government do not consistent with their regulation. 2. Recognition of the legal timber and forest products from community forest or small/medium forest enterprises still low. 3. The qualified trainers are not available on time. 4. Not all stakeholders participate actively in the trainings 5. The new Indonesian Timber Legality verification system is not recognized by market as tools for verification of timber produced. Those risks will be mitigated through the strategy implemented in the project as explained. The proposed project indicated a total number of US $ 555,163 will be needed. A significant amount of fund US $ 474,163 (85 %) is expected come from main donor (ITTO). Counter budget will be needed to run the Executing Agency (Dit.Gen Forest Production Development ) totally US $ 81,000-2-

LIST OF ABBREVIATIONS AND ACRONYMS CBPF : Community Based Plantation Forest FLEGT : Thematic Programmes on Forest Law Enforcement and Forest Degradation and Enhancing Environment IUPHHK-HT : The holder of Forest Product Utilization License in Plantation Forest IUPHHK-HTR : The holder of Forest Product Utilization License in Community Plantation Forest IUPHHK-HKm : The holder of Timber Product Utilization License in Community Forest ITTA : The International Tropical Timber Agreement LP&VI : Independent Assessment and Verification Agency LEI : The Indonesian Ecolabelling Institute MoF : Ministry of Forestry Permenhut : Ministerial Forestry Decree NAC : the National Accreditation Committee IPB : Bogor Agricultural University UGM : Gadjah Mada University UNFF : United Nation on Forest Forum SK : Decree TLAS : Timber Legality and Assurance System TLVS : Timber Legality Verification Standard -3-

PART I PROJECT CONTEXT 1.1 Origin Lack of forest law enforcement, governance and trade generating illegal logging in Indonesia that consequently affecting Indonesian forest product trade in the international market. Forest operations conducted against the law under-value the resource, result in the degradation of the resource, and lead to sub-optimal socioeconomic benefits for local people, unfair competition for legitimate operators, and suboptimal tax revenues for the state as well as loss of environmental services. With regard to the improvement of forest law enforcement, governance and trade, the Government of Indonesia has undertaken a lot of efforts and initiatives concerning to good forest governance through the issuance of regulation to provide legal assurance and guidelines for all stakeholders that have business or activities on forestry sector. Therefore, timber administration will be undertaken in organized and efficient manners with the intention that forest sustainability, government revenue and optimum forest product utilization can be achieved. Since 2003 the Government initiated to collaboratively work with multi-stakeholders in developing timber legality verification standard (TLVS). The Indonesian timber legality standard was developed to answer attack from various parties, particularly international forest community toward concerns on legality of timber and timber products from Indonesia. Doubtfulness on timber legality has affected to marketing and price of Indonesian timber and timber products that eventually creating uncertainty to the product sustainability. Standard Verification of Wood Legality (SVWL) is developed through the following principles: (1) security of area and utilization right principle and (2) fulfil the system and procedure of legal logging, (3) fulfilment of environment and social aspect related to feeling. After a long process that involving multi-stakeholders on forestry sector, eventually on 12 June 2009 the Ministry of Forestry issued a ministerial decree on sustainable forest management and timber legality through the Minister of Forestry decree No. P.38/Menhut-II/2009 concerning Standard and Guidelines on Performance Assessment of Sustainable Production Forest Management and Verification of Timber Legality that applied for state and private forests. Additionally, with regard to the standard, an assessment guidelines is stipulated under decree of the Director General of Forest Production Forest Development No. P.6/VI-Set/2009. Through the new regulation, verification will be undertaken by independent bodies/third party. The regulation is applied for all concession holders (natural forest, plantation, people forest-hr and community plantation forest-htr), industries (upstream and downstream) and private forest. It is expected that the implementation of the new regulations would be able to improve credibility of Indonesian timber and timber products, and at the same time would also improve the price, therefore, Indonesian forestry companies could manage their concessions sustainably. However to facilitate an effective implementation of the regulation, it is necessary to improve the capacity of particularly community and the small/medium main wood industries whose directly process the timber from community. Additionally, with the intention of developing institutional aspect of the TLVS, supports from forestry stakeholders are still required. In light of the importance in tackling the issues, the project will support the implementation of the new Indonesian TLAS for timber resource from community forest and community plantation forest in Java. As the top priority, the proposed project will focus on improving capacity of these groups and the other relevant stakeholders that will be achieved through dissemination of information on the new standard of TLAS to the community and relevant stakeholders, and conducting development series of training and strengthening of the monitoring institution. This idea is proposed to be financed under the ITTO Thematic Programmes on Forest Law Enforcement and Forest Degradation and Enhancing Environment (FLEGT). -4-

1.2 Relevance 1.2.1 Conformity with ITTO s objectives and priorities (1) Compliance with ITTA 2006 The improving capacity of relevant stakeholders in implementing new Indonesian TLAS for timber resource from community forest (HR) and community plantation forest (HTR) in Indonesia is fully conform with the objectives of the International Tropical Timber Agreement (ITTA) 2006, on article 1 in specifically on paragraph: a) Providing an effective framework for consultations international cooperation and policy development among all members with regard to all relevant aspects of the world timber economy; b) Providing a forum for consultation to promote non-discriminatory timber trade practices; c) Contributing to sustainable development and to poverty alleviation; d) Enhancing the capacity of members to implement strategies for achieving exports of tropical timber and timber products from sustainably managed sources; (n) Strengthening the capacity of members to improve forest law enforcement and governance, and address illegal logging and related trade in tropical timber. (2) Compliance with ITTO Action Plan 2008-2011 The proposed project complies with various aspects as raised in the ITTO Action Plan 2008-2011 particularly in the commission of Economic Information and Market Intelligence: GOAL 1: Improve transparency of the international timber market And action: 1. Undertake an Annual Review and Assessment of the World Timber Situation. 2. Promote the collection and dissemination of accurate and timely trade and economic data relevant to the global timber market, in cooperation with international organizations and other sources, with a view also to reducing duplication where possible. 3. Where feasible and in cooperation with relevant organizations, fill key data gaps through regular assessments and special studies, including the collection and analysis of information on forest law enforcement, sustainable timber harvesting, illegal trade, secondary products, substitution, plantation timber, and certified products. 4. Compile and disseminate information on the marketing prospects of lesser-used timber species, nontimber forest products and environmental services and the development of markets for them. GOAL 2: Promote tropical timber from sustainably managed sources Actions as follows: 1. Support the effective enforcement of forest laws and regulations and the development and application of good forest sector governance, and facilitate the exchange of experiences among members. 2. Promote public awareness of progress made in implementing sustainable forest management and in the increased availability of tropical timber from sustainably managed sources 3. Provide a forum for discussion on non-discriminatory trade, subsidies for competing products, shortcomings in enforcement of forest law and regulation, and other factors that may affect the marketability and access of tropical timber products. 4. Assist members, as appropriate, to build capacity to engage in voluntary certification to enhance the market acceptance of tropical timber and tropical timber products. 5. Regularly analyse the market and product requirements and specifications that have to be met in order to develop exports of added-value products. (3). Compliance with Thematic Programme on Forest Law Enforcement, Governance and Trade (TFLET) The proposed project coherent with the general objective of the Thematic Programme which is to improve national forest law enforcement and governance in tropical ITTO member countries in order to: Enhance and diversify international trade in tropical timber from sustainably forests, and Help alleviate poverty in those countries. And consistent with the specific objective of the programme: 1. To strengthen forest law compliance and governance through improved national policy and legal frameworks, strengthened enforcement and other institutions, improved data and knowledge, strengthened partnerships and improved cooperation among the private sector, civil society organizations and other stakeholders. -5-

2. To improve transparency and effective management of supply chains and increased domestic and international trade in legally produced tropical timber. 3. To improve capacity of community and small and medium sized enterprises to implement and demonstrate that timber produced and traded comes from legal sources contributing to sustainable livelihoods. 4. Improve international cooperation in forest law enforcement and governance among ITTO member countries and other related international initiatives. The proposal is also consistent with the program objectives such as: A. Strengthening forest law compliance and governance. 1) Improve policy and legal frameworks and strengthen institutions targeted at improved law compliance and poverty reduction through one or more of the following actions e. Implement measures to build capacity among enforcement organizations through training; f. Undertake other relevant activities to strengthen policy and institutional frameworks and support to capacity building for monitoring, verification and certification. 3) Enhance capacity of the civil society, the private sector organizations and other actors to contribute to forest law compliance through the following actions: a) Support capacity building and other efforts by the civil society and the private sector to detect and monitor illegal logging activities and other illicit activities in areas known to be critically affected by such activities; b) Support private sector organizations to develop and implement codes of conduct for legal compliance and SFM. 4) Strengthen educational institutions and other relevant bodies to: a) Develop and implement specific training courses and programmes on forest law compliance and governance, including training of trainers and training of forest-dependent communities and SMEs; b) Elaborate and disseminate relevant training materials B. Support to production and marketing of legally produced tropical timber and effective supply chain Management 5) Support effort to increase awareness of illegal logging in domestic markets in Support development of cost-effective timber tracking system and methods to demonstrate the legality of timber and timber products, including system suitable for forest dependent communities and SMEs 6) Support efforts to increase awareness of illegal logging in domestic markets in tropical timber producing countries and to promote export and domestic demand for legally produced tropical timber and timber products. C. Support capacity building of poor forest dependent communities and small and medium sized enterprises to produce and trade timber from legal and sustainable source through a variety of activities. 7) Support capacity building of poor forest-dependent communities and small/ medium sized enterprises to produce and trade timber from legal and sustainable sources through the project activities such as: a) Training and organizational development. b) Testing the criteria and indicator of legal verification -6-

1.2.2 Relevance to the submitting country s policies Indonesia has taken a long journey to ensure the legality of its timber and timber products. The efforts of Indonesia to combat illegal logging have linked with some initiatives, such as EU FLEGT VPA, US Lacey Act, CITES. The EU FLEGT VPA initiative brings both producing and consuming countries to share responsibility in combating illegal logging in each ends. VPA allow both consumers and producers of timber to address the illegal logging through a voluntary negotiation, yet binding in its effects. In this initiative producing country like Indonesia negotiates ways to address illegal logging through implementation of timber legality assurance system (TLAS) with EU as consuming countries. The TLAS scheme proposed in the VPA very much matches the Indonesian s Timber Legality Verification System (SVLK) developed under the initiative of the action plan to combat illegal logging in 2002. Furthermore, US has recently amended the Lacey Act aimed at combating illegal logging and expanding anti trafficking protection to a broader set of plant and plants product, including timber. The Act has made it unlawful to import, export, transport, sell, receive, acquire, or purchase in interstate of foreign commerce any plants or products that were harvested or taken in violation of a domestic or foreign law. The above initiatives will provide a robust incentive for tropical timber producers (such as Indonesia) and exporters to stamp out illegal practices in forest management and timber trade and encourage them to make rapid progress towards the demonstration of legal compliance. The formulation of this proposal has been conformed with the National policy and regulation in Indonesia which are related to sustainable forest management and verification & legality are: 1) Law Number 5/1990 concerning the Conservation of Biological Natural Resources and the Ecosystem (the Republic of Indonesia s Government Official Gazette of 1990 Number 49; Annex to the Republic of Indonesia s Government Official Gazette Number 3419; 2) Government Regulation Number 6/2007 concerning Forest System and Forest Management Planning, and Forest Utilization (the Republic of Indonesia s Government Official Gazette of 2007 Number 22, Annex to the Republic of Indonesia s Government Official Gazette Number 4696) as amended. 3) with Government Regulation Number 3/2008 (the Republic of Indonesia s Official Gazette of 2008 Number 16, Annex to the Republic of Indonesia s Government Official Gazette Number 4814); 4) Minister s Regulation Number P.55/Menhut-II/2006 concerning Administration of Forest Product Originating in State-Owner Forest as amended several times, the last being with Number P.8/Menhut- II/2009; 5) Forestry Minister s Regulation Number P.51/Menhut-II/2006 Use of Origin Certificates (SKAU) for Transportation of Timber Forest Products Originating in Right Forest/Privately-owned forest, as amended several times, the last being with Number P.33/Menhut-II/2007; 6) Regulation of Trade Minister Number 20/M-DAG/PER/5/2008 concerning Provisions for Forestry Industrial Product Export. Article 16 7) SFM Assessment whose funding has been available in the 2009 fiscal year, shall be implemented by virtue of Forestry Minister's Decree Number 4795/Kpts-II/2002 concerning Criteria and Indicators for Management of Sustainable Production Natural Forest in the Management Unit and Forestry Minister's Decree Number 208/Kpts-II/2003 concerning Procedure for Assessment of Timber Forest Product Utilization Performance in Natural Forest in the Management Unit for Sustainable Forest Management; 8) Director General of forestry production development regulation Number: P.6/VI-Set/2009 concerning Standards and Guidelines on assessment of performance in sustainable production forest management and timber legality verification. 9) Decree of the Secretariat General Ministry of Forestry No. SK 99/II-KUM/2008, has established a working group to stimulate finalization of timber legality standards processes and capacity building. This working group is created for supporting governance of forestry sector and negotiation RI and European Union on FLEGT VPA. -7-

10) The Working group of Timber Legality Standard is chaired by Director of Forest revenues and forest products circulation to accelerate finalization process of wood legality standard formulation. The standard itself will also applicable for other countries those are acting as wood consumers and wood products originated from Indonesia. 11) The working group of capacity building is chaired by the Head of Education Centre and Training of Ministry of Forestry that they will arrange plan and capacity building needs that are required in promoting timber legality standard implementation in accordance with the FLEGT-VPA negotiation process. There are 3 phases regarding FLEGT-VPA negotiation are as follow: on going negotiation, agreement signature and fully application of negotiation results. 12) Ministry of Forestry regulation No..38/Menhut-II/2009 on Standard and Guidelines of performance evaluation on Forest Production management and Timber Legality Standard for those license holders or rights forests. In the standard and evaluation guideline was defined through a regulation of the Director General of Forestry Production Development no P.6/VI-SET/2009 on June 15, 2009. 1.3 Target Area 1.3.1 Geographic location The project activities in improving capacities will be conducted for target group communities, mainly license holder of forest plantation and relevant parties as well as the small/medium wood processing industries in Java Region (West, Central and East Java). Java is selected since in Java island area for community forest have expanded positively. The community forest area has reached 4,670 ha. They have a promising potency which could produce 39,42 million m3 from area of 1,57 million ha. As public awareness of illegal logging issues has grown, so the community forest owners need to seek assurances of legality of origin and compliance with national norms defining legality for the timber they produced. Growing awareness of these issues, has also resulted in an increase in interest among manufactures especially the small/medium size processing industries located in Java regarding their supply chains and an interest in reducing the risk potential associated with conducting trade in illegally sourced materials. Since the Ministry of Forestry has developed a mechanism for verifying the legality of forest products, this project will disseminate and inform the new formulated Timber Legality Verification System to the stakeholders in Java Island. Pilot area in West Java located in Ciamis District, Surabaya East Java and Semarang Central Java. To ensure the effectiveness of project implementation, administrative operation will be maintained in Jakarta. 1.3.2 Social, cultural, economic and environmental aspects Social Cultural Aspect The project will be conducted in pilot area which located in West, Central and East Java. Mostly of the forest area belonged to local community with secure tenure right and clear tree ownership. The improving capacities in implementing TLAS for timber resource from community forest and community plantation forest will involve local communities (in and around forest areas). Legally proved timber products from communities plantation will not be difficult to enter the market. It will bring the economic value of trees to the people directly, and will improve the conditions of poorest communities usually living surround the forest area. They will get mix of social, cultural, economic, and environmental benefits. This community forest will also provide green products from sustainably managed forests, local generating income from legal timber product will encourages them to plant more trees in various land type in Java. This condition will prevent the communities encroach the forest area. This project will provide benefit from a social point of view to ensure the wood industries sustainably Awareness and skills of communities will improve, and then they have other beneficial activities (Community base forest management) to reduce local dependency to forest resource (they will not interested anymore involved in illegal activities) to support their families with sufficient income. It is recognized as mentioned above that the recent rampage of illegal logging has not only caused rapid changes of the economic structure of the community but has also resulted in the change of their environment, social and religious norms have been put aside and ignored. This project will seek a best approach to support and return their traditional wisdom values in utilizing the forest. -8-

Economic Aspect This project will be of benefit to the economy by helping to ensure further industrial development legally and to improve of legal market for trade forest products from community forest and community plantation forest which contribute a large share of revenue to national and regional economy Environmental Aspect Illegal logging is the cause of widespread environmental damage and presents a grave threat to biodiversity. The threat to ecosystems and biodiversity is enormous with very little long-term advantages for anyone other than those who are responsible for the plunder and smuggling of timber from the country. Illegal logging caused the destruction threats to the property and value of population of endangered species or other biological resources in major ecosystem. By introducing an effective mechanism for verifying the legality of forest products, the proposed project make a strong contribution to the achievement of SFM in communities forest area. This will contribute to the environment by highlighting the wood industries demand from the sustained yield of forest resources. Upon completion of the project the sustainable conservation of living resources and ecosystem will be developed and improved. 1.4 Expected Outcomes at project completion. It is expected that upon completion of the project, the capacities relevant parties/stakeholder in implementing TLAS had been improved and developed. Trade volume of legal timber from sustainable community forest and community plantation forest will increase as well. The community will be inspired to plant their unproductive land with the commercial plantations since they have been aware that they forest could produce proven legal timber and will have open export opportunities for their processing wood products This outcome will promote the local economy of forest dependent communities. By the end of project, the Ministry of Forestry regulation No. P.38/Menhut-II/2009 on Standard and Guidelines of performance evaluation on Forest Production management and Timber Legality Standard for those license holders or rights forests will be implemented effectively and disseminated amongst major forest stakeholders since the effective networking established. Appropriate independent institution will be established for monitoring of the implementation this regulation in the field. A long term effect of the project intervention is expected that national economy from forestry sector increased and Illegal logging and illegal timber in Indonesia reduced. -9-

PART II PROJECT RATIONALE AND OBJECTIVES 2.1.1. Institutional set-up and organizational Issues. International Market especially in European market, must be based on a Legality Assurance System (LAS) which provides a reliable means to distinguish between legal and illegally produced forest products. The system consist of five elements: (1) a definition of legal timber; (2) verification of compliance with the definition; (3) verification of supply chain controls from harvesting to export to ensure that no timber of unknown or illegal origin is included in exported shipments; (4) issuance of licences; and (5) independent monitoring to ensure the LAS is working as intended. In most cases, the verification of legal compliance and supply chain control elements will be operated by Partner country government agencies, or qualified private sector verification organizations (e.g. providers of inspection services) acting on a Partner country government s behalf. However, it is also possible that the LAS may provide for one or both of these elements to be operated by Verification bodies contracted by market participants- i.e. any entity operating timber production in a Partner country s jurisdiction. The latter are called market participant-based legality assurance controls. They may operate throughout the supply chain from timber harvesting, through transport and manufacturing to export. The above information are new, and it will be disseminated during the training or the workshop to all stakeholders who will be directly involved in the process of timber legality assessment. Concerning to the above matters, relevant institutions will be invited both in the training and in the workshop or in the focus group discussion. Such institutions which will be involved among others: Centre for Forest Education and Training, who dealing with the curriculum and syllabus or training material. The other partner is National Accreditation Committee, who will accredited the Independent assessment body; and the Independent assessment body itself will be invited to give the general sense of evaluation and assessment for timber verification. 2.1.2. Stakeholder analysis In June 2009 Ministry of forestry issued Ministerial Decree (Permenhut) No. 38/Menhut-II/2009 outlining the arrangement for the institution that deal with standard of SFM and verification system for timber legality. Additionally, with regard to the standard, an assessment guidelines is stipulated under decree of the Director General of Forest Production Development No. P.6/VI-Set/2009. The Objective of Legality Standard Formulation is to give a clear picture on how timber products are controlled, including its data recording and documentation. The Formulation of the Indonesian TLAS was a multi-stakeholder process which involve a wide range of stakeholders, such as local communities, forest managers, private sectors, academicians, local NGO as well as local and national governments. P.38/Menhut-II/2009 stipulating institutional and operational framework for assessment of performance and verification of timber legality, and independent monitoring. Meanwhile P.6/VI- Set/2009 stipulating standards and guidelines for verification of timber legality performance in sustainability production forest management. In line with P.6/VI-Set/2009, the legality verification of timber is applied to operations in state-owned and privately-owned forests and at industrial processing facilities covering all round logs and processed timber products for domestic and export markets. Separate performance standards and guidelines are developed for the following license and forest ownership types: Forest concession rights within production forest zones on state-owned lands. Community plantation forests and community forests within production forest zones on state-owned lands. Timber utilization rights within non-forest zones on state-owned lands Privately-owned forests Upstream and downstream industry. -10-

To inform the new standard related to above mater in general, series of national workshops have been done and continued by intensive meeting and discussion attended by all relevant stakeholders. In fact, however, all of involved stakeholders still need technical skill and financial assistance to improve their capacity in implementing this regulation effectively. To address the above needs, on July 2009, intensive meeting has been held mainly to elaborate a clear and comprehensive problem analysis based on the key issue above for developing this proposal. Relevant stakeholder has shared in problem tackled through the project intervention in implementing new Indonesian TLAS for timber resources. Based on the discussions, it appears that communities are the most group which lack of access to have the information on the TLAS implementation, so the proposal is focussing to empower community forest and community plantation forest in Java Indonesia. This is an important step and show the designed project will be accepted and supported by all parties. The stakeholder analysis table below, present the perception as well as interest and opinion for project implementation and also for sustainability of the intervention upon completion of the project. Stakeholder Group Characteristics Problems, needs, interests Primary Stakeholders Community Forest dependent farmers/forest Within & around the owner/manager forest Small/medium sized forest enterprises/ forest industries. Land owner Secondary Stakeholders Community owned the land planted with forest tree species Limited capacity and financial support Not active and less of communications with business practitioners. Livelihoods Lack of knowledge and understanding about new TLAS for timber legality verification. Lack of financial capacity Need technical support to develop auditing systems of legal compliance Lack of knowledge, lack of capacity Potentials They are close to the resource/ access They are organized They have traditional knowledge Interested to expand their market access Producers of processing forest products Provide the land for the plantation activities. Involvement in the project Primary project beneficiaries Local communities will get necessary information and improve capacity as well as adequate economic incentives to manage forest sustainably Primary project beneficiaries. Will use the new TLAS to improve control and verification of their supply chains. Project partner Involved in some activities related to improving capacities such as training and workshop/ dissemination process on TLAS Local Government - Locally based - They have resources - They also have low enforcement power problem Limited coordination Lack of capacity - Have authority In district/ provincial level - Can mobilized people in the community - They have network in provincial and district level Involved in project activities mainly in facilitating dialogue and discussion in provincial and district level, Working together with Executing Agency in providing field data and information related to new TLAS from community forest -11-

National Government (Directorate General of Forest Production Development and Center for Forestry Education and Training) Independent assessment body National Accreditation Committee Managing natural and plantation forests Responsible for Forestry Education and Training Experienced in conducting assessment of forest operations performance, experienced in using the standard, criteria and indicator for assessment. Experienced in conducting accreditation to all institution. High pressure on natural forest. Should promoting plantation forest Should promoting community forests and community plantation forests. Should improve the capacity building of forestry communities Needs capacity building to enhance capacity for participating in policy and legal reforms, monitoring of legal compliance. Implementing accreditation procedures to the assessment body Having resources Having network Having experience in preparing curriculum and conducting the training activities. Having enough experts and staffs whose experienced is monitoring and assessing the legal compliance, FMU performance, Provide procedures for accreditation of the assessment body. Project implementing agency Policy makers will create proper policy and strategy in order to support implementing new TLAS mainly in capacity building process Provide manual for training activities with target group are: communities, small/medium forest enterprises, local independent monitoring body, local government Project implementation partner Involving in dissemination activities As trainers and facilitator in project activities Participate in dialogues and focus discussion cause as key actor in giving accreditation to the independent assessment/ verification body. Tertiary Stakeholders NGO s Actively involved in monitoring activities Lack of technical knowledge Experienced working with communities Project implementation partner/sub contract As facilitator/ in improving awareness activities on new TLAS mainly for communities as a target group 2.1.3. Problem Analysiss Lack of forest law enforcement, governance and trade generating illegal logging in Indonesia that consequently affecting Indonesian forest products trade in the international market. Illegal forest activities contribute to the degradation of forests and undermine the contribution of the forest sector to poverty alleviation, social and economic development. In international market, it has become increasingly unacceptable to use illegal timber products in public and private purchasing. As a consequence, trade volume of legal timber that could access the export market is limited. This is particularly in the case of community forests and small/medium community timber processing industries which are often not well equipped to comply with extensive documentary procedures and may therefore operate outside the law. With regard to the improvement of forest law enforcement, governance and trade, the Ministry of Forestry of Indonesia has undertaken a lot of efforts and initiatives concerning to good forest governance through the issuance of regulation to provide legal assurance and guidelines for all stakeholders that have business or activities on forestry sector. Therefore, timber administration will be undertaken in organized and efficient manners. -12-

The new Indonesian standard on sustainable forest management and timber legality verification has been formulated through the Minister of Forestry decree No. P.38/Menhut-II/2009 concerning Standard and Guidelines on Assessment and Performance of Sustainable Production Forest Management and Verification of Timber Legality that applied for state and private forests. Additionally, with regard to the standard, an assessment guidelines is stipulated under decree of the Director General of Forest Production Development No. P.6/VI-Set/2009. The Timber Legality Verification Standard (TLVS) is formulated based on consideration to promote the SFM and the implementation of forest governance, suppression of illegal logging and its associated trade. As a new national program which directly influencing the share of Indonesian timber products in international market, the TLVS need serious preparation before implemented. The Indonesian TLVS have specific Standard and unique character that is not as easy to be understood by general public who are not familiar with forest operations. It has been acknowledged that the stakeholders (government institutions, private sector actors such as forest companies and verification agencies; and civil societies) involved in the implementation of TLVS shall have adequate human and other resources and necessary technical skills to fulfill their responsibilities. For the enabling condition, the TLVS and its standard should be introduced to the wide scope of stakeholders through dissemination process. If the dissemination is not prepared carefully, it will be in-effective, wasting money and cannot achieve the target. This proposal is focussed to support forest community owner, community plantation forests and small/medium size community forest industries in Java. There are some reasons to support the community s capacity. The First reason, community forest area mainly concentrated in Java, have a promising potency which is could produce 39, 42 million cum from area of 1,57 million ha. The timber produced could give an alternative source of intake for the small/medium processing industries. Unfortunately, the market structure for this local processing timber is still domestic and limited since they have a constraint such as the lack of capability among forest communities and forest owners to control resources, prove the legal status, and implement SFM. Achieving verified legal compliance and sustainability of forest operations within a short time period is a huge challenge for many local community forest owners everywhere, and its apparent that they require significant support to meet the mounting and diverse market requirements in order to maintain their market shares. The other reason is, In fact, community forest owners and small/medium sized community forest enterprises, are still and often selling their products through intermediaries, who do not care with the SFM and supply chain control. They are poorly equipped to benefit from market opportunities for tropical timber and further processing timber products, and to demonstrate legal compliance and sustainability of their operations in order to meet the respective market requirements. This problem then more elaborated, and after consultation process to determine the opinions and obtain input from representatives of the various stakeholders during the formulation of this project proposals, it is concluded that there is one key problem that affected the market access for their products. This problem is relating to the new established Minister of forestry regulation which is Lack of capability in implementing new Indonesian TLAS for timber resource from community forest and community plantation forest to prove legal compliance for the timber produced. There are three main causes of the key problem was initially defined as (1) Inadequate dissemination of information on the new standard of TLAS for community and relevant stakeholders and (2) Institution for monitoring implementaion of TLAS for timber resource from community forest and community plantation forest is not established and (3) Lack of training in implementing the new Indonesia standard TLAS for license holder of community forest (HTR) and community plantation forest (HTI) as well as local government officers. The explanation of those causes are as follows: Lack of data and information concerning the involved stakeholders and key interest groups. The types of forest ownership have been mentioned in the new regulation which are : forest concessionaires, community plantation forests owners, community forests owners, timber utilization industries, privately forest owners and small/medium size processing industries. However, it is not clear yet about the data of total amount for each group of stakeholders and their area distributions. Especially info of community and private-owned forests. -13-